The Impact Of Ownership Structures On Top Executives Compensation And Pay-performance Sensitivity

With the development of China’s stock market, there are more and more investors payattention to the system of top management incentives of listed companies. The outstandingissues of top management incentives are how to establish effective and reasonableregulation and supervision, how to better reflect the value of top management withcompensation and how to properly establish top management compensation systemaccording to the features of the company, which are also issues of studies about topmanagement compensation problems. Most foreign studies show there is significantpositive correlation between executive compensation and corporate performance, andsupport the thesis that characteristics of ownership structure have effect onPay-performance sensitivity of top management compensation. But as most objects offoreign study are well-developed capital markets and our country is undergoing economictransformation, the results are for reference only. Domestic studies of this field mostlyfocus on correlativity between the two of ownership structure, top managementcompensation and corporate performance, studies including the three of them are rareuntil now. In accordance with actual situations of listed company in China, this paperstudies the effect of ownership structure on Pay-performance sensitivity of topmanagement.Based on theories and results of relevant literature, this paper investigates theeffect of the proportion of the first shareholder, sum of square of top five proportion of theshareholders, index of power balance with shareholder structure on pay-performancesensitivity of top management through descriptive statistics and multivariable linearregression model with the annual data of all a-share listed companies in China between2010and2011. Results show the proportion of the first shareholder and sum of square oftop five proportion of the shareholders have positive correlation with pay-performancesensitivity of top management, and if the proportion of the first shareholder is beyond50%or index of power balance with shareholder structure rise, pay-performance sensitivity oftop management will decrease. With the comparative study on state-owned companies andnon-state-owned companies, results show that nature of controller is irrelevant to the effect.According to the conclusion, suggestions are as follows. Firstly, it’s necessary tokeep the concentration of ownership as companies with higher ownership concentrationhave higher efficiency in our country. Secondly, the way of top management incentivesshould be innovated and diversified, such as promote equity incentive. Thirdly, Enhancedisclosure mechanism and improve the transparency of top management compensation, notonly by making rigid provision on the disclosure of compensation amount, but also demandlisted companies disclose other aspects of the structure of top management compensation.